Global Markets Update Monday, 17 February 2020

Posted on 17 Feb 2020

Global stocks rose modestly amid hopes that the coronavirus outbreak would be relatively mild in the US and Europe.

The US administration announced it would raise tariffs on plane imports from 10-15%, but decided against raising the 25% levies it has also put in place on a wide range of European and British goods, ranging from food to tools and apparel.

Global Markets Update - 17th February 2020

The FTSE 100 slid 0.8% over the week.

Sajid Javid quit as Chancellor of the Exchequer. While the ex-Chancellor retained his job in the cabinet reshuffle, he handed in his notice after refusing to sack all his aids. He will be replaced with up-and-coming Tory star Rishi Sunak. The UK’s forthcoming budget on 11 March may be delayed as a result, with market commentators also speculating that the new chancellor may take a more relaxed approached to meeting UK fiscal rules.

The UK economy saw no growth in the final three months of 2019. The UK’s dominant services sector grew by just 0.1% and the construction sector grew by 0.5%, but the manufacturing sector saw output fall by 1.1%.

Retail sales rose 0.4% in January compared with the same month in 2019, adding to evidence that consumer sentiment had improved in the aftermath of the general election result.

Boris Johnson announced that the controversial HS2 high-speed rail link will go ahead. 

BP pledged net zero carbon emissions by 2050, the most ambitious climate target to date from a major oil company.

The S&P 500 gained 1.5% over the week, with the index touching a fresh high, as did the tech-heavy Nasdaq.

Fed chair Jay Powell said the US central bank was “closely monitoring” the risks to the US economy from the coronavirus outbreak to see if the disruptions in China spill over to the global economy.

Bernie Sanders won the New Hampshire Democratic primary contest. Pete Buttigieg, who won the Iowa contest, also performed well, but Joe Biden disappointed. 

US retail sales rose 0.3% in January, while data was revised down to a gain of 0.2% (previously 0.3%). The data was in line with expectations.

US industrial production fell 0.3% in January from the previous month, partly due to Boeing’s decision to halt production of its 737 Max aircraft.

Credit rating agencies S&P and Fitch cut their ratings on Kraft Heinz to junk status as the company resisted a further cut to its dividend despite its hefty $28bn debt burden. S&P cited the company’s “unwillingness” to cut its dividend and said there had been “significant mismanagement” at the company in recent years. Fitch warned that Kraft Heinz may need to raise $9bn from disposals to reduce leverage to the levels that executives have said they are targeting.

The FTSEurofirst 300 rose 1.3% over the week.
The German economy flatlined over the final quarter of 2019, a slowdown from the 0.2% growth recorded in the third quarter and meaning that the economy expanded 0.4% compared to the same period in 2018. Eurostat also confirmed its initial estimate that eurozone GDP expanded just 0.1% in the final quarter of last year, its slowest rate of expansion since early 2013, with all three of the largest economies in the region (France, Italy and Germany) recording disappointing economic activity. 

Eurozone industrial production dropped 2.1% in December, taking the decline over 2019 to 4.1% - the weakest performance since the region’s sovereign debt crisis in 2012.

AKK (Annegret Kramp-Karrenbauer) resigned as leader of Germany’s Christian Democrats over a local dispute over dealings with the AfD. AKK had been seen as the would-be successor to Angela Merkel as Germany’s Chancellor.

In Ireland, the left-wing nationalist party Sinn Féin won the highest share of the vote in the weekend’s general election. Leo Varadkar’s party Fine Gael came in third place. 

The Nikkei 225 eased 0.6% over the week.

Pacific Basin
Chinese workers officially returned to work following an extended Lunar New Year shutdown caused by the spread of the coronavirus. However, many businesses extended holidays or implemented work-from-home arrangements to contain the outbreak. Wuhan province, the heart of the outbreak, remains in shutdown.
Emerging Markets
Mexico’s central bank cut interest rates by 25bps to 7%, almost a three-year low, even though inflation had recently edged up.

The yield on the 10-year US Treasury closed the week at 1.58%, while the yield on the 10-year German Bund ended the week at -0.40%. 

The yield on the 10-year Greek government bond fell below 1.0% for the first time on record.

The International Energy Agency predicted that oil demand will grow at its slowest annual rate since 2011 this year as the coronavirus outbreak hits Chinese consumption, dragging on the global economy.

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